Penalty under Section 11AC survives pre-notice payment when duty is paid only after departmental detection of wrongful credit

Penalty under Section 11AC of the Central Excise Act was held maintainable where Modvat credit had been wrongly availed and duty with interest was paid only after departmental objection. Payment before issuance of the show cause notice did not bar penalty because it was not voluntary and followed detection by the department. The earlier view against penalty on pre-notice payment was treated as inapplicable on those facts, and the deletion of penalty was modified by restoring penalty, though at a reduced amount.

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Issues: Whether penalty under Section 11AC of the Central Excise Act was liable to be set aside merely because the duty and interest were paid before issuance of the show cause notice.

Analysis: The respondents had wrongly availed Modvat credit and the duty with interest was paid only after the departmental objection was raised. The payment was not voluntary, and the conduct did not justify deletion of penalty. The earlier view that no penalty can be imposed where duty is paid before the show cause notice was held inapplicable because it concerned voluntary payment.

Conclusion: Penalty under Section 11AC was leviable and the order deleting it was modified by restoring penalty, though at a reduced amount.

Ratio Decidendi: Payment of duty and interest before issuance of the show cause notice does not bar penalty under Section 11AC when the payment is not voluntary and is made after detection by the department.

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